Dispute Resolution for Double Taxation in the European Union

The EU Member States have reached agreement on new measures to help resolve double taxation problems for all citizens and businesses across the EU.

The Commission has welcomed the agreement reached by Member States.

Double taxation occurs when the same income is taxed by two or more Member States, creating uncertainty, unnecessary cost and cash-flow problems for taxpayers. The Dispute Resolution Mechanism is essential for fair taxation: individuals and companies should pay their fair share of tax but should not have to pay it twice. The imposition of comparable taxes by two(or more) tax jurisdictions in respect of the same taxable income or capital has impeded the smooth functioning of the single market through negative impact on cross-border investment, and leading to economic distortions and inefficiencies. Accordingly, it was felt necessary to have a mechanism to resolve tax disputes between Member States on how to eliminate double taxation.

The Directive provides for the elimination of double taxation by agreement between the Member States including, if necessary, by reference to the opinion of an independent advisory body.

The Directive focusses on business and companies, the main stakeholders affected by double taxation situations. It builds on the existing Union Arbitration Convention Transfer Pricing and the Arbitration Convention,(which already provides for a mandatory binding arbitration mechanism), but broadens the scope to areas which are not currently covered and adds targeted features to address the main shortcomings identified, such as enhancing enforceability and effectiveness of this mechanism.

The new rules will ensure that when income is double taxed, taxpayers will have a clear, quick and definitive process for resolving the issue, either through agreement by the Member States concerned or through a decision of an advisory commission. Citizens and small companies will benefit from an even further simplified procedure.

The new rules will now be formally adopted and are set to apply to double taxation disputes from 1 July 2019.

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